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BC Releases Employer Health Tax Details: New Measures Effective January 1, 2019

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Last month, British Columbia announced legislation that provides details on the operation of the Employer Health Tax that takes effect January 1, 2019. The EHT is designed to replace revenue lost by the province’s elimination of Medical Services Plan premiums. However, as MSP premiums will not be eliminated until January 1, 2020, both EHT and MSP premiums will be payable in the province next year. This issue of FYI details the new EHT and what employers need to do to prepare for January 1.

Background

Hospital and medical services in British Columbia are provided by the Medical Services Plan (MSP). It is currently funded by premiums (payable monthly), which vary based on income and family composition (single, family of two, or family of three or more). Ontario is currently the only other province that uses premiums to fund healthcare.

The BC Budget 2018, tabled on February 20, 2018, announced the elimination of MSP premiums effective January 1, 2020, and the introduction of the Employer Health Tax (EHT) as an alternate MSP funding method effective January 1, 2019. The EHT is a payroll tax — once it takes effect, British Columbia will join Manitoba, Newfoundland and Labrador, Ontario, and Quebec using this healthcare funding method. Provinces and territories that do not charge direct premiums or use payroll taxes fund hospital and medical care through general tax revenues.

Bill 44 Details

On October 16, 2018, British Columbia introduced Bill 44, the Budget Measures Implementation (Employer Health Tax) Act, 2018. While preliminary details about the EHT were announced in July 2018, they were provided subject to legislative approval — this has now been provided with the introduction of Bill 44.

Who pays?

The EHT will be payable by employers and charitable and nonprofit employers with a permanent establishment in British Columbia. “Employers” include individuals, corporations, partnerships, trusts and governments. “Permanent establishment” is defined as any fixed place of business (branches, factories, agencies, etc.). The EHT is also payable in respect of employees who do not report to work at a permanent establishment but are paid from or through a permanent establishment in the province.

What is taxable?

The EHT is payable based on an employer’s “BC remuneration” paid to employees and former employees who report to or are paid from a permanent establishment in the province. Bill 44 provides that remuneration includes salaries/wages, bonuses, taxable allowances and commissions. It also covers items that would be included in income by virtue of sections 5 to 7 of the Income Tax Act, such as employer-paid RRSP contributions, stock option benefits and employer-paid group life insurance premiums. Note that remuneration does not include pension, annuity or other superannuation benefits paid to former employees following retirement.

How much?

The EHT is payable by employers with annual BC remuneration over $500,000 ($1,500,000 for registered charities and nonprofit organizations). Special rules determine how these exemptions are shared among associated employers. Affected employers must share the exemptions using these rules — they cannot elect out of the association rules. Note that associated charities and nonprofit organizations are not required to share exemptions. If an employer begins or ceases to have a permanent establishment in the province during a calendar year, their exemption will be prorated pursuant to specific rules.

Annual BC Payroll (millions) Tax Rate – Regular Employers Tax Rate – Charities & NonProfits
Below $0.5 0% 0%
Between $0.5 and $1.5 2.95% on payroll over $0.5 million 0%
Between $1.5 and $4.5 1.95% of total BC payroll 2.95% on payroll over $1.5 million
Over $4.5 1.95% of total BC payroll 1.95% of total BC payroll

 

When and how?

Eligible employers must register for the EHT through eTaxBC or their financial institution. Registration will be available starting January 7, 2019.

The EHT can be paid either annually (by March 31 of the following calendar year) or quarterly. Employers whose EHT exceeded $2,925 in a calendar year must pay the next year’s EHT in quarterly installment payments. These payments must be the lesser of:

  • 25 percent of the previous year’s EHT, or
  • 25 percent of the estimated EHT for the current year

Employers are required to estimate the EHT that they would have paid for the 2018 calendar year had the EHT been in effect — if that estimated amount exceeds $2,925, installment payments must be made in 2019. The first such payment for affected employers is due June 15, 2019. Late or missed payments are subject to interest, calculated at 25 percent of the lesser of the EHT payable in either the current or preceding calendar year. Interest is also charged on any shortfall between the amount of EHT due and actually paid by an employer.

The first EHT return is due March 31, 2020, with subsequent returns due March 31 of the following calendar year. Employers who fail to file the required returns may be subject to administrative penalties.

Looking Ahead

Employers with permanent establishments in British Columbia need to prepare to calculate and remit the EHT, keeping the following key dates in mind:

January 1, 2019 EHT takes effect
January 7, 2019 EHT registration begins
May 15, 2019 Registration deadline — employers required to pay EHT installments in 2019
June 15, 2019 First installment due for affected employers
December 31, 2019 Registration deadline — employers not required to register by May 15th
March 31, 2020 Filing and payment of first EHT return

Employers that currently pay MSP premiums for their employees will see their costs increase in 2019 as they will be paying both those premiums and the EHT. Costs will decline once MSP premiums are phased out in 2020.

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